Regions

South Korean Central Bank Keeps Interest Rates Unchanged, Observes Impact of New Stimulus Package

February 16
5:23 AM 2016

The Bank of Korea (BoK), South Korean central bank, has decided on keeping the interest rate unchanged on Tuesday. The much expected decision on unchanged interest rate for the eighth consecutive month has been taken in a meeting of the monetary policy committee. The effects from global policy changes on the slowly recovering local economy have apparently prompted the authority to adopt such decision.

BoK has kept the seven day repurchase rate in place, at a record low of 1.5%. The decision has been opposed by Ha Sung Keun, one of the board members, proposing for a cut. However, five of his colleagues have nodded Governor Lee Ju Yeol.

The domestic market has been exhibiting signs of weaknesses due to export slumping and rising volatility in Financial Markets. To tackle the situation, the central bank has expanded a special loan program for small businesses, reports Bloomberg.

Twenty-five out of twenty-seven analysts have forecast for holding interest rate steady while going through a poll. Meanwhile, majority of the analysts have predicted for a rate cut in March, reports CNBC citing Reuters conducted poll as the source.

South Korean economy has been slowed with the volatility existed in the global financial market. The strength in domestic consumption recovery has been witnessed to weaken slightly. However, the growth has been forecast to continue centering on domestic consumption, reports Channel News Asia quoting Lee Ju Yeol, Governor of BoK.

Meanwhile, BoK has been presumed to keep rates on hold in the coming months by Krystal Tan, Asia economist at research firm Capital Economics. Additional rate cuts may encourage households to take on more debt, she argues in favor of her predictions. The BoK is believed to asses the impact of recently declared government's stimulus package, unveiled on February 3, adds Ms. Tan to her points of argument.

GDP of the country has retreated from a five year high in the final quarter of 2015 followed by the stimulus led boom in construction investment. The benchmark Kospi index has gained 0.77% surpassing other regional bourses following the announcement.

Meanwhile, the won has moved a little against US Dollar. The Asia's fourth largest economy has expanded 3% during the fourth quarter of 2015 compared to a year earlier.

BoK has decided to keep interest rates unchanged for the eight consecutive months on Tuesday. The effects from global policy changes on the slowly recovering local economy have been accounted while adopting the decision. The decision has been much anticipated since BoK requires time to asses the impact of government's new stimulus package on the econmy. 

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